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Start bailing out Freddie Mac with Richard Syron's $38 million

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The New York Times reports that Freddie Mac (NYSE: FRE) CEO Richard Syron ignored warnings four years ago that Freddie was taking on too much risk by underwriting poor quality mortgages and that its capital base was too thin. Last week, the President signed a bailout bill that increases the national debt limit by $800 billion -- the potential size of the bailout of Fannie Mae (NYSE: FNM) and Freddie.

If the sources that the Times is quoting are right, the blame for Freddie's portion of that bailout rests with Syron. It interviewed Freddie Mac's former chief risk officer, David A. Andrukonis, who warned Syron that it was underwriting bad mortgages. According to the Times, Andrukonis "recalled telling Mr. Syron in mid-2004 that the company was buying bad loans that "would likely pose an enormous financial and reputational risk to the company and the country."

Syron claims that he received enormous pressure from an un-named lawmaker pushing Freddie to take on the bad loans. So the Times reports that as Syron and others sat in a conference room reviewing the memo, Syron "refused to consider possibilities for reducing Freddie Mac's risks. He said we couldn't afford to say no to anyone."

Did Syron get paid millions of dollars to take orders from Congress? It's not clear why that should be such a high paying job. Nor is it clear why American taxpayers should pay the price for Syron's inability to manage Freddie. While $38 million -- .0048% of the bailout -- seems like a drop in the bucket compared to the magnitude of the problems, it looks like Syron made the decisions that created the need for the bailout.

I think he would be the right taxpayer to start bailing out Freddie's mistakes. Then we can move on to Freddie's board members. The idea of private profit and socialized losses has got to end. Let's kick off the beginning of that end with Syron.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

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Last updated: July 04, 2009: 06:09 AM

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